Marketing Tipz: What's Your Business Really Worth?
Professional Surveyor Magazine - Jan/Feb 1999
John McIntosh, Jr., LS and Susan Zeloznicki
For some entrepreneurs, owning a business is a lifestyle choice that brings them many challenges and rewards. For others, it creates something of value they can sell later as a means toward another end, such as an early, comfortable or desperately wanted retirement. If you want to sell your business, you want the most money you can get and the best terms. You've worked hard, taken chances and invested precious capital. How do you get the best return for your time and investment?
According to Gary Viner, president of GVA Professional Services (a firm specializing in packaging businesses for sale), most businesses sell for far less than they're worth because owners don't know how to place a value on some of their most valuable assets. It used to be believed that for professional service firms like surveying, the assets were the employees, who could walk out the door after the sale, leaving a new owner holding some equipment and not much else. This belief crippled these firms' values, making them worth little more than the hard assets. That's the old thinking.
Today, professional service businesses offer a wealth of opportunities for the savvy buyer. Remember, you're not just selling to other professional surveyors who want their own practice. Surveying firms can help an engineering company that wants to expand its services or move into a new geographic territory. Buying your firm could save a large construction company money by controlling time and costs for construction staking. A homebuilder that needs frequent surveys might want your firm to expedite its own developments. Your firm is attractive for many reasons. Make it worth more!
Business evaluations can cost many thousands of dollars to complete. Be sure you work with a business analyst with some experience in your field who can ask the right questions and find your firm's hidden values. In Viner's 30-plus years in the business, he has found that many owners wanted to write their own business evaluations either because they were too expensive or they felt they knew more about their own businesses than anyone else could learn. To guide them through the process and create a professional product, he wrote a 3-part handbook that is now available online (www.gvapublishing.com). Here are some tips to get you started.
To get the best price for your business, it's important to provide an evaluation that includes more than just financials for the past few years. A good evaluation will contain a thorough company history, including its operations, assets, employee strengths and marketing program. Instead of tax returns, a professional evaluation should include financials that are recast so they more accurately reflect your true operating costs and the profits that would be seen by a new owner. Your own accountant probably doesn't know how to recast your financials because that has not been his or her job. He or she has most likely worked hard to save money on taxes by producing statements focused in another direction.
To recast financials you need to look at some of the expenses that might be removed by another owner, such as your personal brand of company car or special perks that are unique to you and your business (health club memberships, special incentives and so forth). If your spouse is on the payroll to capture a minority or disadvantaged certification, this expense or salary would be reallocated or removed when recasting.
There are many ways to add value to your business. A good evaluator will factor that information into the evaluation and make your business worth more than you expected. Your surveying equipment is a hard asset, which can be easily appraised and have a value attached. However, there are other important elements that are less tangible and must be added to the formula.
If you write this document yourself, it's important to look at your business objectively. Review your company in scrupulous detail: is your equipment in good repair? Is it the latest and greatest? Do you have any long term or repeat business? Does business depend on your personal attention? Is the market growing for your services? Do you have loyal staff or clients? Is your business profitable? If it hasn't been, why not?
In many cases, declining sales may reflect a specific condition rather than the ability of the business to perform. A new owner may be able to rectify this. I recently evaluated a business with 14 offices. The owner was trying to resolve some family issues and couldn't devote attention to the branches. Sales were dropping because the owner wouldn't let the managers run the offices autonomously. In our evaluation, we showcased the business potential within this company's specific market niche and predicted a strong and steady growth with very little effort. For a new owner, it would be easy to increase sales. That potential raised the sale price considerably.
Other things to look at in valuing your business include how it fits into the bigger picture of your community, geographic territory or industry. Are you one of the few companies fully GPS-equipped? Do you offer more or better mapping capabilities than others in your business? What is unique? What is consistent with the industry? How effective is your marketing campaign? Is there name recognition, where people automatically call you to quote on their jobs? In your evaluation, place greater emphasis on the attributes that make your company more desirable.
The worth of a business is the combination of its assets, its past and its potential. Don't overlook one element and hope the rest will reap the rewards. Showcase all its attributes in a handsomely packaged business evaluation. It's the first step in selling your business for what it's really worth.
Susan Zeloznicki is a marketing consultant based in Tempe, Arizona, and is a Contributing Editor for the magazine.
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